From Narrative to Numbers: ESG Signalling for Investors

Sammanfattning

This thesis investigates the strategic transformation of corporate sustainability from a voluntary compliance burden into a critical financial signalling mechanism within the European Union’s evolving regulatory landscape. Following the implementation of the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy, firms are facing a regulatory tsunami that imposes significant structural and financial costs. The research addresses the central problem of compliance panic, where firms view Environmental, Social, and Governance (ESG) mandates as sunk costs rather than value-creating assets. Utilising Signalling Theory as a theoretical framework, this study explores how standardised, transparent ESG reporting serves as a high-quality signal that reduces information asymmetry between firms (signallers) and investors (receivers). With a qualitative approach, the authors conducted semi-structured interviews with experts across the banking, finance, risk assessment, and corporate sectors to examine the non-financial aspects, affecting the relationship between ESG disclosure and the Cost of Capital (CoC). The findings suggest that proactive ESG adoption allows firms to signal their long-term resilience, lower idiosyncratic risk, and greater risk awareness. The study concludes that robust governance acts as the core of signal transmitting, validating environmental and social data to build institutional trust. Ultimately, the research demonstrates that firms effectively leveraging the ESG framework can mitigate investor uncertainty, thereby achieving a tangible monetary reward in the form of a reduced CoC. This thesis contributes to the academic discourse by shifting the perception of ESG from a bureaucratic drag to a strategic tool for financial optimisation and market competitiveness.